Period 1 Factor 1 0.02% 6.87 4.70 2 3 4 0.70 5 6 7 8 9 Factor 3 -1.77% -1.19 1.85 0.24 4.22 -1.57 -1.81 5.79 -3.85 -2.78 -3.73 -4.91 -6.14 1.57 -3.12 2.84 3.12 10 11 12 13 14 Portfolio A Portfolio B 1.05% 0.00% 7.68 6.58 5.07 6.09 1.10 0.39 -2.04 -1.52 4.31 2.42 -0.76 -2.51 -15.40 -15.46 5.95 3.98 7.68 6.79 7.86 5.51 9.59 4.96 5.15 2.67 -3.10 -0.55 5.48 2.54 2.42 7.21 -2.78 0.06 6.55 3.70 -3.31 -0.53 -1.16 -4.11 -1.41 0.06 6.07 5.39 1.98 2.35 7.11 7.14 -4.76 -2.75 1.05 -1.97 9.04 5.27 -4.37 -2.89 -3.37 -0.70 Factor 2 -1.06% 0.24 -1.38 0.48 -3.62 -3.46 -4.42 -5.86 0.01 -3.30 1.28 -0.41 1.16 -5.55 -3.89 2.80 3.36 3.32 1.95 -1.26 3.33 -6.48 7.64 7.05 4.13 21.41 -16.72 -7.55 -5.82 15 -3.04 2.85 -2.80 -16.20 6.04 7.21 5.83 5.94 3.41 -4.10 3.42 4.56 -2.49 4.80 -3.45 -1.40 -2.71 5.71 3.27 7.81 -4.53 2.63 5.12 -6.25 -4.18 4.76 16 17 18 -4.28 19 0.77 -1.25 20 21 22 23 24 25 26 27 -3.15 -3.17 -8.14 -8.96 -0.20 -12.07 7.79 8.56 5.35 -8.68 28 29 30 3.82 1.83 13.26 b/ a. Using regression analysis, calculate the factor betas of each stock associated with each of the common risk factors. Which of these coefficients are statistically significant at 5% level of significance? Fill in the table below. Use a minus sign to enter negative values, if any. Do not round Intermediate calculations. Round your answers for factor betas to three decimal places and answers for t-statistics to two decimal places t-statistic Significance Regression for Portfolio A Constant -Select- Factor 1 -Select- Factor 2 -Select- Factor 3 -Select- Regression for Portfolio B Constant -Select- Factor 1 -Select- Factor 2 -Select- Factor 3 -Select b. How well does the factor model explain the variation in portfolio returns? On what basis can you make an evaluation of this nature? The factor models explain - Select as the -Select- values in both regressions are -Select- c. Suppose you are now told that the three factors used in the models represent the risk exposures in the Fama-French characteristic-based model (i.e. excess market, SMB, and HML). Based on your regression results, which one of these factors is the most likely to be the market factor? Explain why. -Select-vis the most likely candidate for the market factor, because it has a -Select- effect on both portfolios. d. Suppose it is further revealed that Factor 3 is the HML factor. Which of the two portfolios is most likely to be a growth-oriented fund and which is a value-oriented fund? Explain why -Select- is the more likely candidate for the value-oriented portfolio as it has a -Select- loading on this factor -Select- is the more likely candidate for the growth-oriented portfolio as it has a -Select- loading on this factor Period 1 Factor 1 0.02% 6.87 4.70 2 3 4 0.70 5 6 7 8 9 Factor 3 -1.77% -1.19 1.85 0.24 4.22 -1.57 -1.81 5.79 -3.85 -2.78 -3.73 -4.91 -6.14 1.57 -3.12 2.84 3.12 10 11 12 13 14 Portfolio A Portfolio B 1.05% 0.00% 7.68 6.58 5.07 6.09 1.10 0.39 -2.04 -1.52 4.31 2.42 -0.76 -2.51 -15.40 -15.46 5.95 3.98 7.68 6.79 7.86 5.51 9.59 4.96 5.15 2.67 -3.10 -0.55 5.48 2.54 2.42 7.21 -2.78 0.06 6.55 3.70 -3.31 -0.53 -1.16 -4.11 -1.41 0.06 6.07 5.39 1.98 2.35 7.11 7.14 -4.76 -2.75 1.05 -1.97 9.04 5.27 -4.37 -2.89 -3.37 -0.70 Factor 2 -1.06% 0.24 -1.38 0.48 -3.62 -3.46 -4.42 -5.86 0.01 -3.30 1.28 -0.41 1.16 -5.55 -3.89 2.80 3.36 3.32 1.95 -1.26 3.33 -6.48 7.64 7.05 4.13 21.41 -16.72 -7.55 -5.82 15 -3.04 2.85 -2.80 -16.20 6.04 7.21 5.83 5.94 3.41 -4.10 3.42 4.56 -2.49 4.80 -3.45 -1.40 -2.71 5.71 3.27 7.81 -4.53 2.63 5.12 -6.25 -4.18 4.76 16 17 18 -4.28 19 0.77 -1.25 20 21 22 23 24 25 26 27 -3.15 -3.17 -8.14 -8.96 -0.20 -12.07 7.79 8.56 5.35 -8.68 28 29 30 3.82 1.83 13.26 b/ a. Using regression analysis, calculate the factor betas of each stock associated with each of the common risk factors. Which of these coefficients are statistically significant at 5% level of significance? Fill in the table below. Use a minus sign to enter negative values, if any. Do not round Intermediate calculations. Round your answers for factor betas to three decimal places and answers for t-statistics to two decimal places t-statistic Significance Regression for Portfolio A Constant -Select- Factor 1 -Select- Factor 2 -Select- Factor 3 -Select- Regression for Portfolio B Constant -Select- Factor 1 -Select- Factor 2 -Select- Factor 3 -Select b. How well does the factor model explain the variation in portfolio returns? On what basis can you make an evaluation of this nature? The factor models explain - Select as the -Select- values in both regressions are -Select- c. Suppose you are now told that the three factors used in the models represent the risk exposures in the Fama-French characteristic-based model (i.e. excess market, SMB, and HML). Based on your regression results, which one of these factors is the most likely to be the market factor? Explain why. -Select-vis the most likely candidate for the market factor, because it has a -Select- effect on both portfolios. d. Suppose it is further revealed that Factor 3 is the HML factor. Which of the two portfolios is most likely to be a growth-oriented fund and which is a value-oriented fund? Explain why -Select- is the more likely candidate for the value-oriented portfolio as it has a -Select- loading on this factor -Select- is the more likely candidate for the growth-oriented portfolio as it has a -Select- loading on this factor